Commission report on Irish economy revealed to Bundestag

A GLOBAL economic slowdown this year could require further “fiscal tightening” in Ireland and see next year’s planned return to financial markets “evaporate”, the European Commission has warned.

In a report circulated yesterday in the German parliament, the Commission reveals that, in December, it demanded a revised asset sale programme after dismissing the Government’s original plan as “not sufficiently ambitious”.

This is the second time sensitive information about the Irish economy has been released to a committee of the Bundestag.

It follows the disclosure in Germany last November of budget details, including changes to VAT, in advance of their formal announcement by the Government.

The disclosure of the latest document, which has been seen by The Irish Times, came at an awkward moment a day after the decision to hold a referendum on the European Stability Treaty.

Fianna Fáil finance spokesman Michael McGrath said it had brought “furtherembarrassment for the Government”. He called on the Coalition to raise the issue with the troika and insist any documents concerning Irish economic affairs be brought to the Dáil in the first instance.

Sinn Féin finance spokesman Pearse Doherty described the manner of the report’s release as troubling. “It is also worrying that the European Commission appears to be recommending greater cuts and tax hikes,” he said.

However, the Department of Finance said the draft report to be published today was part of the routine process involved in Ireland being able to access EU-IMF funding.

The document was circulated to the Bundestag committee by Germany’s federal finance ministry in Berlin. Looking to the future, the report points to challenges in bank deleveraging and warned that Ireland’s growth outlook in 2012 relied heavily on its trading partners’ own economic fortunes.

The commission inspectors express concern that Irish banks are entering “a more difficult phase” in their deleveraging programme, with “considerably impaired” access to funds, meaning a continued reliance in the short term on central bank funding.

“Banks might find it increasingly difficult to continue meeting their deleveraging targets without accepting higher haircuts on the assets they sell,” adds the report.

The commission promises a review of deleveraging procedures to reflect Government concerns that banks may “over-compete for deposits” to boost their loan-to-deposit ratio.

After demanding a more ambitious plan for State asset disposals, the report says due diligence will be completed by March and a portion of the sale proceeds will be “used to fund Government plans for employment-enhancing measures”.

The report notes the Government’s plan to sell Irish Life, put on hold last November due to euro area turbulence, will now go ahead before June.